Do Low Contribution Limits Insulate Incumbents from Competition?

Abstract

This paper examines whether campaign contribution limits lead to closer elections and improve challengers' chances of victory, or insulate incumbents from challenge. Empirical work helps to determine which of these theoretical predictions is correct. A good test of these predictions is to test the effect of low contribution limits ($500/individual contributor or less) on the competitiveness of elections, because low limits are most likely to affect the campaigns of incumbents and challengers. States are natural laboratories to examine the consequences of tight contribution limits because state legislative races, unlike Congressional races, have campaign finance limits within a large range, from stringent to non-existent. This paper analyzes state assembly races from 1980 to 2006, and examines whether candidates’ vote shares and election outcomes are altered by changes in state campaign contribution restrictions over time, using five different measures of election competitiveness. The findings are that contribution limits in general lead to more competitive elections, and that this effect is largest for low contribution limits. Relative to races with contribution limits of $2,000 and higher, the tightest limit considered - a $500 cap on contributions by individuals - reduces the average margin of victory of incumbents by 14 percent, increases the likelihood of a close race by over 15 percent, and increases the likelihood of incumbent defeat by 10 percent.